The three-tier system: How the Renters’ Rights Bill could reshape student housing dynamics

It looks like the Government is preparing for the sprint to the finish line, having made no concessions so far on the Renters’ Rights Bill. Unsurprisingly, there are lots of dissatisfied voices in the industry, mostly from landlords, all worried that the Government’s understanding of the student rental sector is too limited. 

One of the areas we have previously highlighted our concern for is the three-tier system that is on track to be implemented in the student sector next summer.

What is the three-tier system? 

The “three-tier system” is a proposed framework to regulate private landlords and enhance accountability in the private rented sector (PRS). It consists of mandatory landlord registration, landlord ombudsman and Decent Homes Standard with the aim to reduce exploitation, ensure consistent property conditions, and empower tenants with stronger rights. However, it has raised concerns among landlords regarding increased administrative responsibilities and compliance costs. 

It’s widely acknowledged that PBSAs will be granted an exemption from the Renters’ Rights Bill; however, this exemption will not be extended to the HMO sector. Instead, landlords of HMOs (three or more tenants from two or more households) will be able to gain possession of their properties via Ground 4a to ensure tenancies keep in-step with the academic year;  but Ground 4a will not be available for landlords of properties with fewer than three tenants. So the rights afforded to students will vary quite significantly depending on whether they are in (1) a PBSA, (2) a property with at least two other tenants or (3) renting with one other tenant or alone (which doesn’t qualify as an HMO.)

• Almost 80% of students in PRS live in HMOs
• Properties with 6+ beds are the most popular housing option 

 Source: StuRents (Concurrent). 

Currently, over 20.9% of students in the PRS, renting a house (as opposed to living in a PBSA) are living alone or with one other tenant. The misconception within Government may be that these are all post-graduate students, but plenty of undergraduates either opt to live in smaller properties or are forced to through lack of alternative options.

So, with undergraduate students split across PBSA, HMO and non-HMO housing — each with different tenant rights —  the first major concern is that students will struggle to understand their rights under the Renters’ Rights Bill. This inconsistency will lead to confusion and present opportunities for bad actors to exploit students who aren’t fully literate in tenancy law. 

Secondly, the exclusion of non-HMOs from Ground 4a provisions will risk many 1- and 2-bed properties falling out of sync with the academic year. This will raise costs for the underlying landlords (via lost rent and council tax) and drive rental prices up; with landlords of other properties in the area able to reference those inflated prices when determining the market rate for rent-setting, this will ultimately inflate rental prices more broadly. 

The loss of these 1 and 2-bed properties during peak house-hunting season will also contract the supply of accommodation and reduce choice for students. Worse still, any property that is out-of-sync with the academic year could remain uninhabited for long periods of time as non-students typically avoid living in dense student areas. 

Finally, markets with convoluted and inconsistent regulations deter investment. If the Government wants investment in the rental sector to raise the standard of accommodation, meet Net Zero targets, and increase the supply of student accommodation to address housing issues, clear and consistent legislation would be a good starting point. 

Source: StuRents (Concurrent). Data based on an analysis of 67217 tenants for tenancies starting in 2024